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8 Performance Measurement and Rewards
8 Performance Measurement and Rewards
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Topic objectives cont.
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Designing Incentives and reward systems design
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Performance-based incentives
• Incentives can take the following forms:
– Intrinsic
o Self-motivation, job satisfaction etc
o People believe goals are legitimate and are committed to achieving them
– Extrinsic
o Formal incentives which include cash, gifts, shares, share options etc.
– Responsive
o Reflect actions that managers can directly influence
o Incentive payments rise and fall depending on performance
o But …how ‘responsive’ are CEO performance measures really?
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Directional influences of reward systems
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Directional influence of reward systems
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Motivational influence of reward systems
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Motivational influence of reward systems
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Corporate financial performance-based incentives
Being able to influence other and engage the support of others will foster innovation
Entrepreneurial Activities: Silo Management
Calculations
Bonus pool size : $400 000 + 10% of corporate profits in excess of $22 million
Bonus pool divided: Local Managers (65%); State Managers (15%); Corporate
(20%)
The bonus pool will be divided among the Local Managers on the basis of the
number of bonus units awarded:
5% annual ROI = one bonus unit;
> 5% = one bonus unit per 1% increase (to a maximum of 6 bonus units)
The monetary value of a bonus unit is found by dividing the total dollar amount in the
local office pool by the total number of bonus units earned by all local managers.
Waltons Home Builders incentive plan cont.
Summary:
• Bonus pool total: $400,000 plus 10% x 500,000
• Total pool shared among: head office (20%); state
managers (15%); and, 43 local managers (65%)
• For local managers: 65% of the total bonus pool is on
100% individual ‘local’ work unit performance
– i.e. 100% Local; 0% State; 0% Waltons overall performance
• Type and mix of incentives - bonus is entirely cash
– no long-term equity or other incentives
• Measure to achieve performance bonus: ROI
• Discuss the issues you find with this case
Changing behaviour with reward systems